-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K/iMSN3RYBEYXuRpz3wOYtBsHwMLiN27wt3UTO6i0AWe7cFb8HnoHL49Z2K+RmKP mFUq+fNxx8GXKygmcrCbww== /in/edgar/work/20000823/0000950123-00-007981/0000950123-00-007981.txt : 20000922 0000950123-00-007981.hdr.sgml : 20000922 ACCESSION NUMBER: 0000950123-00-007981 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000823 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRAVELERS GROWTH & INCOME STOCK ACCT FOR VARIABLE ANNUITIES CENTRAL INDEX KEY: 0000099444 STANDARD INDUSTRIAL CLASSIFICATION: [0000 ] IRS NUMBER: 060566090 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-01539 FILM NUMBER: 708449 BUSINESS ADDRESS: STREET 1: ONE TOWER SQ STREET 2: C/O TRAVELERS INSURANCE CO CITY: HARTFORD STATE: CT ZIP: 06183-2020 BUSINESS PHONE: 2032770111 MAIL ADDRESS: STREET 1: ONE TOWER SQUARE STREET 2: ATTN FINANCIAL SERVICES LEGAL DIVISION CITY: HARTFORD STATE: CT ZIP: 06183-2020 FORMER COMPANY: FORMER CONFORMED NAME: TRAVELERS FUND A FOR VARIABLE ANNUITIES DATE OF NAME CHANGE: 19851103 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES CENTRAL INDEX KEY: 0000099440 STANDARD INDUSTRIAL CLASSIFICATION: [0000 ] IRS NUMBER: 060566090 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-02571 FILM NUMBER: 708450 BUSINESS ADDRESS: STREET 1: ONE TOWER SQ STREET 2: C/O TRAVELERS INSURANCE CO CITY: HARTFORD STATE: CT ZIP: 06183-2020 BUSINESS PHONE: 2032777379 MAIL ADDRESS: STREET 1: ONE TOWER SQUARE STREET 2: ATTN FINANCIAL SERVICES LEGAL DIVISION CITY: HARTFORD STATE: CT ZIP: 06183-2020 FORMER COMPANY: FORMER CONFORMED NAME: TRAVELERS FUND A-1 FOR VARIABLE ANNUITIES DATE OF NAME CHANGE: 19851103 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES CENTRAL INDEX KEY: 0000700871 STANDARD INDUSTRIAL CLASSIFICATION: [0000 ] IRS NUMBER: 060566090 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-03409 FILM NUMBER: 708451 BUSINESS ADDRESS: STREET 1: ONE TOWER SQ STREET 2: C/O TRAVELERS INSURANCE CO CITY: HARTFORD STATE: CT ZIP: 06183 BUSINESS PHONE: 2032777379 MAIL ADDRESS: STREET 1: ONE TOWER SQUARE STREET 2: ATTN FINANCIAL SERVICES LEGAL DIVISION CITY: HARTFORD STATE: CT ZIP: 06183-2020 FORMER COMPANY: FORMER CONFORMED NAME: TRAVELERS FUND MM FOR VARIABLE ANNUITIES DATE OF NAME CHANGE: 19851103 N-30D 1 n-30d.txt TRAVELERS GROWTH AND INCOME STOCK ACCOUNT 1 UNIVERSAL ANNUITY SEMI-ANNUAL REPORTS JUNE 30, 2000 [UMBRELLA LOGO] THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES [TRAVELERS LIFE & ANNUITY LOGO] The Travelers Insurance Company The Travelers Life and Annuity Company One Tower Square Hartford, CT 06183 2 [TAMIC LOGO] Travelers Asset Management International Company, LLC ("TAMIC") provides fixed income management and advisory services for the following Travelers Variable Products Separate Accounts contained in this report: The Travelers Growth and Income Stock Account for Variable Annuities, The Travelers Quality Bond Account for Variable Annuities and The Travelers Money Market Account for Variable Annuities. [TIMCO LOGO] The Travelers Investment Management Company ("TIMCO") provides equity management and subadvisory services for The Travelers Growth and Income Stock Account for Variable Annuities. 3 [TRAVELERS LIFE & ANNUITY LOGO] THE TRAVELERS VARIABLE PRODUCT SEPARATE ACCOUNTS INVESTMENT ADVISORY COMMENTARY AS OF JUNE 30, 2000 MARKET AND ECONOMIC OVERVIEW Stocks declined in the second quarter of 2000, leaving many of the major indexes down for the first half of the year as investors debated potential rate increases by the Federal Reserve Board ("Fed"). Volatility continued to be a major theme with both the Dow Jones Industrial Average ("DJIA") (1) and the Nasdaq Composite Index ("NASDAQ")(2) registering record one-day point losses. The breadth of the declines affected a wide range of stocks including many small- and large- capitalization company stocks, growth stocks and value stocks. (Growth stocks are shares of companies with historically strong and relatively predictable earnings growth rates. Value stocks are shares of companies that are believed to be undervalued but have good longer-term business prospects.) Momentum investing and dot.com stocks were out of favor, replaced in many cases by a renewed interest in companies that many investors believed may provide real earnings and had strong financials. Concerns about higher interest rates peaked in mid-May, when the Fed raised interest rates an additional 50 basis points (3). The specter of rising rates was a catalyst for the weak performance of all of the major indexes during the period. The DJIA, which is made up of Old Economy companies, declined 8.44% during the reporting period. (The Old Economy represents more established, "blue-chip" companies.) The Standard & Poor's 500 Index ("S&P 500 Index") (4) of large-company stocks fell 0.43%, the Standard and Poor's MidCap 400 Index (5) ("S&P MidCap 400 Index") of medium-size company stocks and the Russell 2000 Index (6) of small-company stocks advanced 8.97% and 3.04%, respectively, for the six months ended June 30, 2000. For the sixth consecutive time in the last year, the Fed acted to raise interest rates in May to slow the U.S. economy, increasing the federal funds rate by 50 basis points to 6.5%. (The federal funds rate is the interest rate that banks with excess reserves at a Fed district bank charge other banks that need overnight loans. The fed funds rate, as it is called, often points to the direction of U.S. interest rates.) The increase of the target overnight interest rate marked its highest level in nine years and reflected Fed actions intended to address risks of an economy with higher inflationary pressures. The Fed continued to stress its concern that there is a disparity in the growth of demand and potential supply, which may foster inflation and jeopardize the economy's performance. In theory, higher rates may potentially hurt stocks, because slower growth often hinders profits at the same time that alternative investments become more attractive. Accordingly, many interest-rate sensitive stocks experienced price declines after the recent decision. -1- 4 In June, many investors were relieved after the Fed left interest rates unchanged during its latest policy meeting. Although the central bank noted that inflation risks persist, the decision was made against more interest rate increases was ruled out for the time being. Generally, monetary policy takes time to filter through the economy and the full effect of higher interest rates may not be felt for months. (1) DJIA is a price-weighted average of 30 actively traded blue-chip stocks. An investor cannot invest in an index. (2) The NASDAQ is a market value-weighted index that measures all domestic and non-U.S. based securities listed on the NASDAQ stock market. An investor cannot invest directly in an index. (3) A basis point is 0.01% or one one-hundredth of a percent. (4) The S&P 500 Index is a market capitalization measure of 500 widely held common stocks. An investor cannot invest directly in an index. (5) S&P 400 Midcap Index is a market-value weighted index, consisting of 400 domestic stocks chosen for market size liquidating and industry group representation. (6) Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index DAVID A. TYSON, CFA, PRESIDENT & CHIEF INVESTMENT OFFICER, TRAVELERS ASSET MANAGEMENT INTERNATIONAL COMPANY, LLC SANDIP A. BHAGAT, CFA, PRESIDENT & CHIEF INVESTMENT OFFICER, THE TRAVELERS INVESTMENT MANAGEMENT COMPANY -2- 5
TABLE OF CONTENTS PAGE - -------------------------------------------------------------------------------------- THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES................................................................4 THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES............................................................................17 THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES............................................................................27
-3- 6 THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES The Travelers Growth and Income Stock Account for Variable Annuities ("Account GIS") is managed by the Travelers Asset Management International Company, LLC ("TAMIC") with the Travelers Investment Management Company ("TIMCO") serving as subadvisor. Account GIS is managed to provide diversified exposure to the large-company segment of the U.S. equity market. Stock selection is based on a quantitative screening process favoring companies that are able to grow earnings above consensus expectations and offer attractive relative value. In order to achieve consistent relative performance, we manage Account GIS to mirror the overall risk, sector weightings and growth/value style characteristics of the Standard & Poor's 500 Stock Index ("S&P 500"). The S&P 500 is a value-weighted equity index comprised primarily of large-company stocks. For the six months ending June 30, 2000, Account GIS achieved a total return of - -0.3%, before fees and expenses, in line with the S&P 500 return of -0.4%. Net of fees and expenses, Account GIS's total return of -1.2% for the first half of 2000 was comparable to the -1.0% median return for variable annuity stock accounts in the Lipper Growth & Income category. On a trailing twelve month basis as of June 30, 2000, Account GIS had a total return of 8.2%, net of fees and expenses, well ahead of the Lipper Growth & Income median of 0.6%. A discussion of portfolio performance in each of the first two quarters of 2000 is presented next. During the first quarter of 2000, stock selection was most favorable in the Financial Services, Producer Durables and Utilities sectors and slightly adverse in the Technology and Health care sectors. In the Financial Services sector, falling long-term rates helped bank and brokerage stocks. Our overweight positions in Merrill Lynch & Co., Morgan Stanley Dean Witter & Co., Lehman Brothers Holdings, Inc. and Chase Manhattan Corp., which serve to offset the underweight restriction in Citigroup, all performed quite well. Avoiding Associated First Capital which experienced disappointing operating performance in its loan origination business and AON Corp. which failed to meet consensus expectations for fourth quarter earnings also helped us. In the Producer Durables sector, Tyco International Ltd. continued to rebound from the controversy surrounding its accounting practices in the treatment of mergers and acquisitions. By the end of the first quarter, Tyco International Ltd. had recovered most of the nearly -50% loss from the previous high established in September 1999. PerkinElmer, Inc. was also a strong performer with positive earnings and revenue momentum generated from its line of telecommunications products. In the Utilities sector, our emphasis on telecommunications companies such as Nextel Communications, Inc. and Sprint Corp.-PCS Group continues to payoff. Nextel Communications, Inc. launched its worldwide cell phone service with several new joint ventures in the first quarter and Sprint Corp.-PCS Group continued to increase its penetration in the digital wireless market. In the Technology sector, we were hurt by our picks in the software industry. BMC Software Inc. notified investors on January 5 that it was going to significantly miss the consensus earnings forecast of 53 cents/share due to an unexpected slowdown in North American sales. Other mainframe software stocks such as Compuware Corp. sold off in sympathy. Our performance was hurt by small overweight positions in both stocks. In the Healthcare sector, we lost ground from being underweight in better performing stocks such as Pfizer, Inc. and Guidant. Performance was also hindered by Columbia/HCA Healthcare Corp., the hospital giant, which reported earnings in line with expectations but fell sharply as it failed to match the above-average operating results of other major hospital companies. At the beginning of the second quarter, market volatility spiked up significantly. Value stocks dominated early in the quarter and growth stocks staged a strong recovery towards the end of the quarter. Stock selection hurt relative performance in the Consumer Discretionary and Utilities sectors, was favorable in the Producer Durables sector and remained mixed in the other sectors. -4- 7 Higher interest rates and gasoline prices began to take their toll on retail stocks in the Consumer Discretionary sector. Our overweight position in Circuit City Stores, Inc. performed poorly as the company indicated that a slowdown in major appliance sales and a shift in the overall merchandise sales mix would result in lower profit margins. Other retail stocks which did not fare well in the second quarter included Lowe's Cos., Inc., Sears, Roebuck & Co. and Target Corp. Stores. In the Producer Durables sector, PerkinElmer, Inc. continued its strong performance with positive earnings and revenue momentum generated from its line of telecommunications products. The big story in this sector, however, was Corning, Inc. which took the unusual step of guiding earnings estimates for the current fiscal year higher as it encounters unprecedented demand for its high tech products such as high-speed optical fiber and cable and LCD flat-panel display glass. Corning, Inc. rose by nearly 40% in the second quarter as its new focus on technology applications propels it into a higher earnings growth orbit. In the Utilities sector, our emphasis on telecommunications companies such as Nextel Communications, Inc., Sprint Corp.-PCS Group and CenturyTel, Inc. did not pay off for the first time in several quarters. The Nasdaq sell-off in April and May had a negative effect on these higher-growth, higher price-to-earnings stocks and contributed adversely to performance. The near term outlook for the stock market relies heavily on monetary policy. The Federal Reserve Board ("Fed") has indicated a hawkish bias in its promise to monitor inflationary developments closely. Economic data reported between now and the next Fed meeting in August will determine if we experience another rise in short term rates. In our disciplined approach to stock selection, we screen our research universe of over 1,000 large cap securities for companies that offer improving earnings fundamentals at discounted stock valuations. A small sample of our current holdings is presented here to illustrate our investment approach. In the technology sector, we are emphasizing Oracle Corp. in the software industry and Micron Technologies, Inc. in the semiconductor industry as they offer strong earnings growth at reasonable valuations. As discussed above, Corning, Inc. represents our biggest active position in the diversified manufacturing group. Merck & Co, Inc. and Pfizer Inc. are our core plays in the health care sector. PORTFOLIO MANAGER: SANDIP A. BHAGAT, CFA [TAMIC LOGO] [TIMCO LOGO] -5- 8 THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 2000
ASSETS: Investment securities, at market value (cost $756,194,253) ......... $1,032,661,675 Receivables: Dividends ...................................................... 849,029 Investment securities sold ..................................... 4,166,370 Purchase payments and transfers from other Travelers accounts .. 464,275 Variation on futures margin .................................... 55,550 Other assets ...................................................... 45,215 -------------- Total Assets .................................................... 1,038,242,114 -------------- LIABILITIES: Cash overdraft .................................................... 449,418 Payables: Investment securities purchased ................................ 3,679,829 Contract surrenders and transfers to other Travelers accounts .. 391,162 Investment management and advisory fees ........................ 133,988 Insurance charges .............................................. 264,600 Accrued liabilities ............................................... 21,088 -------------- Total Liabilities ............................................... 4,940,085 -------------- NET ASSETS: $1,033,302,029 ==============
See Notes to Financial Statements -6- 9 THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2000
INVESTMENT INCOME: Dividends ............................................................ $ 5,194,691 Interest ............................................................. 460,008 ------------- Total income ...................................................... $ 5,654,699 EXPENSES: Investment management and advisory fees .............................. 3,052,584 Insurance charges .................................................... 6,028,381 ------------- Total expenses .................................................... 9,080,965 ------------- Net investment loss ............................................... (3,426,266) ------------- REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES: Realized gain (loss) from investment security transactions: Proceeds from investment securities sold ............................ 318,699,084 Cost of investment securities sold .................................. 275,308,074 ------------- Net realized gain (loss) .......................................... 43,391,010 Change in unrealized gain (loss) on investment securities: Unrealized gain at December 31, 1999 ............................... 329,495,935 Unrealized gain at June 30, 2000 ................................... 276,467,422 ------------- Net change in unrealized gain (loss) for the period ............... (53,028,513) ------------- Net realized gain (loss) and change in unrealized gain (loss) ... (9,637,503) ------------- Net decrease in net assets resulting from operations ................ $ (13,063,769) =============
See Notes to Financial Statements -7- 10 THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 2000 1999 ------------------- ----------------- (UNAUDITED) OPERATIONS: Net investment loss ........................................... $ (3,426,266) $ (5,292,085) Net realized gain (loss) from investment security transactions ............................................... 43,391,010 183,428,890 Net change in unrealized gain (loss) on investment securities ................................................. (53,028,513) 16,046,336 --------------- --------------- Net increase (decrease) in net assets resulting from operations ............................................... (13,063,769) 194,183,141 --------------- --------------- UNIT TRANSACTIONS: Participant purchase payments (applicable to 1,297,770 and 2,777,936 units, respectively) ... 29,541,039 57,722,048 Participant transfers from other Travelers accounts (applicable to 1,846,059 and 4,293,186 units, respectively) ... 42,040,311 88,841,951 Administrative charges (applicable to 13,714 and 28,450 units, respectively) ......... (314,000) (620,057) Contract surrenders (applicable to 2,155,614 and 3,595,965 units, respectively) ... (49,336,031) (75,854,139) Participant transfers to other Travelers accounts (applicable to 2,146,390 and 3,893,858 units, respectively) ... (48,803,333) (80,968,008) Other payments to participants (applicable to 36,227 and 203,710 units, respectively) ........ (820,036) (4,323,110) --------------- --------------- Net decrease in net assets resulting from unit transactions ... (27,692,050) (15,201,315) --------------- --------------- Net increase (decrease) in net assets ...................... (40,755,819) 178,981,826 NET ASSETS: Beginning of period ........................................... 1,074,057,848 895,076,022 --------------- --------------- End of period ................................................. $ 1,033,302,029 $ 1,074,057,848 =============== ===============
See Notes to Financial Statements -8- 11 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES The Travelers Growth and Income Stock Account for Variable Annuities ("Account GIS") is a separate account of The Travelers Insurance Company ("The Travelers"), an indirect wholly owned subsidiary of Citigroup Inc., and is available for funding certain variable annuity contracts issued by The Travelers. Account GIS is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The following is a summary of significant accounting policies consistently followed by Account GIS in the preparation of its financial statements. SECURITY VALUATION. Investments in securities traded on a national securities exchange are valued at the 4:00 p.m. Eastern Standard Time price of the New York Stock Exchange on the last business day of the period; securities traded on the over-the-counter market and listed securities with no reported sales are valued at the mean between the last reported bid and asked prices or on the basis of quotations received from a reputable broker or other recognized source. Short-term investments for which a quoted market price is available are valued at market. Short-term investments for which there is no reliable quoted market price are valued at amortized cost which approximates market. SECURITY TRANSACTIONS. Security transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis. Premiums and discounts are amortized to interest income utilizing the constant yield method. FUTURES CONTRACTS. Account GIS may use stock index futures contracts as a substitute for the purchase or sale of individual securities. When Account GIS enters into a futures contract, it agrees to buy or sell a specified index of stocks at a future time for a fixed price, unless the contract is closed prior to expiration. Account GIS is obligated to deposit with a broker an "initial margin" equivalent to a percentage of the face, or notional value of the contract. It is Account GIS's practice to hold cash and cash equivalents in an amount at least equal to the notional value of outstanding purchased futures contracts, less the initial margin. Cash and cash equivalents include cash on hand, securities segregated under federal and brokerage regulations, and short-term highly liquid investments with maturities generally three months or less when purchased. Generally, futures contracts are closed prior to expiration. Futures contracts purchased by Account GIS are priced and settled daily; accordingly, changes in daily prices are recorded as realized gains or losses and no asset is recorded in the Statement of Investments. However, when Account GIS holds open futures contracts, it assumes a market risk generally equivalent to the underlying market risk of change in the value of the specified indexes associated with the futures contract. OPTIONS. Account GIS may purchase index or individual equity put or call options, thereby obtaining the right to sell or buy a fixed number of shares of the underlying asset at the stated price on or before the stated expiration date. Account GIS may sell the options before expiration. Options held by Account GIS are listed on either national securities exchanges or on over-the-counter markets and are short-term contracts with a duration of less than nine months. The market value of the options will be based on the 4:00 p.m. Eastern Standard Time price of the New York Stock Exchange, or in the absence of such price, the latest bid quotation. REPURCHASE AGREEMENTS. When Account GIS enters into a repurchase agreement (a purchase of securities whereby the seller agrees to repurchase the securities at a mutually agreed upon date and price), the repurchase price of the securities will generally equal the amount paid by Account GIS plus a negotiated interest amount. The seller under the repurchase agreement will be required to provide to Account GIS securities (collateral) whose market value, including accrued interest, will be at least equal to 102% of the repurchase price. Account GIS monitors the value of collateral on a daily basis. Repurchase agreements will be limited to transactions with national banks and reporting broker dealers believed to present minimal credit risks. Account GIS's custodian will take actual or constructive receipt of all securities underlying repurchase agreements until such agreements expire. -9- 12 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED FEDERAL INCOME TAXES. The operations of Account GIS form a part of the total operations of The Travelers and are not taxed separately. The Travelers is taxed as a life insurance company under the Internal Revenue Code of 1986, as amended (the "Code"). Under existing federal income tax law, no taxes are payable on the investment income and capital gains of Account GIS. Account GIS is not taxed as a "regulated investment company" under Subchapter M of the Code. OTHER. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. INVESTMENTS The aggregate costs of purchases and proceeds from sales of investments (other than short-term securities), were $260,774,172 and $262,257,379, respectively; proceeds from sales of direct and indirect U.S. government securities were $1,220,475, for the six months ended June 30, 2000. There were no cost of purchases from direct and indirect U.S. government securities for the six months ended June 30, 2000. Realized gains and losses from investment security transactions are reported on an identified cost basis. Account GIS placed a portion of its security transactions with brokerage firms which are affiliates of The Travelers. The commissions paid to these affiliated firms were $58,687 and $58,130 for the six months ended June 30, 2000 and the year ended December 31, 1999, respectively. At June 30, 2000, Account GIS held 22 open S&P 500 Stock Index futures contracts expiring in September, 2000. The underlying face value, or notional value, of these contracts at June 30, 2000 amounted to $8,074,550. In connection with these contracts, short-term investments with a par value of $460,000 had been pledged as margin deposits. Net realized gains (losses) resulting from futures contracts were ($1,107,891) and $3,444,687 for the six months ended June 30, 2000 and the year ended December 31, 1999, respectively. These losses are included in the net realized gain from investment security transactions on both the Statement of Operations and the Statement of Changes in Net Assets. The cash settlement for June 30, 2000 is shown on the Statement of Assets and Liabilities as a receivable for variation on futures margin. 3. CONTRACT CHARGES Investment management and advisory fees are calculated daily at annual rates which start at 0.65% and decrease, as net assets increase, to 0.40% of Account GIS's average net assets. These fees are paid to Travelers Asset Management International Company, LLC ("TAMIC"), an indirect wholly owned subsidiary of Citigroup Inc. Pursuant to a subadvisory agreement between TAMIC and The Travelers Investment Management Company ("TIMCO"), an indirect wholly owned subsidiary of Citigroup Inc., TAMIC pays TIMCO a subadvisory fee calculated daily at annual rates which start at 0.45% and decrease, as net assets increase, to 0.20% of Account GIS's average net assets. Insurance charges are paid for the mortality and expense risks assumed by The Travelers. Each business day, The Travelers deducts a mortality and expense risk charge which is reflected in the calculation of accumulation and annuity unit values. This charge equals, on an annual basis, 1.0017% for contracts issued prior to May 16, 1983 and 1.25% on an annual basis for contracts issued on or after May 16, 1983. Additionally, for certain contracts in the accumulation phase, a semi-annual charge of $15 (prorated for partial years) is deducted from participant account balances and paid to The Travelers to cover administrative charges. On contracts issued prior to May 16, 1983, The Travelers retained from Account GIS sales charges of $12,359 and $25,099 for the six months ended June 30, 2000 and the year ended December 31, 1999, respectively. The Travelers generally assesses a 5% contingent deferred sales charge if a participant's purchase payment is surrendered within five years of its payment date. Contract surrender payments include $298,388 and $296,975 of contingent deferred sales charges for the six months ended June 30, 2000 and the year ended December 31, 1999, respectively. -10- 13 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 4. NET ASSETS HELD ON BEHALF OF AN AFFILIATE Approximately $21,343,000 and $22,919,000 of the net assets of Account GIS were held on behalf of an affiliate of The Travelers as of June 30, 2000 and December 31, 1999, respectively. Transactions with this affiliate during the six months ended June 30, 2000 and the year ended December 31, 1999, were comprised of participant purchase payments of approximately $91,000 and $761,000 and contract surrenders of approximately $1,401,000 and $2,546,000, respectively. 5. NET CONTRACT OWNERS' EQUITY
JUNE 30, 2000 ---------------------------------------------------------- UNIT NET UNITS VALUE ASSETS ----- ----- ------ Accumulation phase of contracts issued prior to May 16, 1983 .......... 11,749,160 $ 24.171 $ 283,999,001 Annuity phase of contracts issued prior to May 16, 1983 ............... 296,056 24.171 7,156,197 Accumulation phase of contracts issued on or after May 16, 1983 ....... 31,959,645 23.162 740,265,030 Annuity phase of contracts issued on or after May 16, 1983 ............ 81,244 23.162 1,881,801 -------------- Net Contract Owners' Equity ................................................................................ $1,033,302,029 ==============
-11- 14 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 6. SUPPLEMENTARY INFORMATION (Selected data for a unit outstanding throughout each period.)
Contracts issued prior to May 16, 1983 SIX MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION) ---------------- --------------------------------------------------------- 2000 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- ---- SELECTED PER UNIT DATA: Total investment income ................................. $ .130 $ .267 $ .243 $ .233 $ .216 $ .208 Operating expenses ...................................... .189 .347 .272 .201 .154 .123 --------- --------- --------- --------- --------- ------- Net investment income (loss) ............................ (.059) (.080) (.029) .032 .062 .085 Unit value at beginning of period ....................... 24.427 20.017 15.510 11.763 9.668 7.120 Net realized and change in unrealized gains (losses) .... (.197) 4.490 4.536 3.715 2.033 2.463 --------- --------- --------- --------- --------- ------- Unit value at end of period ............................. $ 24.171 $ 24.427 $ 20.017 $ 15.510 $ 11.763 $ 9.668 ========= ========= ========= ========= ========= ======= SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase (decrease) in unit value .................... $ (.26) $ 4.41 $ 4.51 $ 3.75 $ 2.10 $ 2.55 Ratio of operating expenses to average net assets ........ 1.60%* 1.60% 1.56% 1.45% 1.45% 1.45% Ratio of net investment income (loss) to average net assets .............................................. (.48)%* (.37)% (.16)% .24% .60% 1.02% Number of units outstanding at end of period (thousands).. 12,045 12,646 13,894 15,194 16,554 17,896 Portfolio turnover rate .................................. 26% 47% 50% 64% 85% 96%
Contracts issued on or after May 16, 1983
SIX MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION) ---------------- ------------------------------------------------------- 2000 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- ---- SELECTED PER UNIT DATA: Total investment income ................................... $ .125 $ .256 $ .234 $ .228 $ .212 $ .205 Operating expenses ........................................ .209 .385 .303 .228 .175 .140 ---------- --------- -------- --------- --------- ------- Net investment income (loss)............................... (.084) (.129) (.069) .000 .037 .065 Unit value at beginning of period ......................... 23.436 19.253 14.955 11.371 9.369 6.917 Net realized and change in unrealized gains (losses) ...... (.190) 4.312 4.367 3.584 1.965 2.387 ---------- --------- -------- --------- --------- ------- Unit value at end of period ............................... $ 23.162 $ 23.436 $ 19.253 $ 14.955 $ 11.371 $ 9.369 ========== ========= ========= ========= ========= ======= SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase (decrease) in unit value ..................... $ (.27) $ 4.18 $ 4.30 $ 3.58 $ 2.00 $ 2.45 Ratio of operating expenses to average net assets ......... 1.85% * 1.85% 1.81% 1.70% 1.70% 1.70% Ratio of net investment income (loss) to average net assets ................................................... (.73)% * (.62)% (.41)% .00% .36% .79% Number of units outstanding at end of period (thousands) .. 32,041 32,648 32,051 29,545 27,578 26,688 Portfolio turnover rate ................................... 26% 47% 50% 64% 85% 96% * Annualized
-12- 15 THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF INVESTMENTS (UNAUDITED) JUNE 30, 2000
NO. OF MARKET SHARES VALUE ------------ ------------ COMMON STOCKS (98.5%) AEROSPACE (0.4%) Boeing Co. 94,330 $ 3,944,173 -------------- AIRLINES (0.2%) AMR Corp. (A) 9,580 253,271 Delta Airlines, Inc. 28,900 1,461,256 -------------- 1,714,527 -------------- AUTOMOTIVE (1.1%) Ford Motor Co. 102,500 4,407,500 General Motors Corp. 45,800 2,659,263 Harley Davidson, Inc. 54,000 2,079,000 Johnson Controls, Inc. 41,900 2,149,994 Visteon Corp. (A) 13,421 162,725 -------------- 11,458,482 -------------- BANKING (3.7%) Bank of America Corp. 108,124 4,649,332 Bank of New York 80,900 3,761,850 Bank One Corp. 103,264 2,742,950 Capital One Financial Corp. 39,300 1,753,763 Chase Manhattan Corp. 122,406 5,638,326 Fifth Third BanCorp 21,400 1,354,220 Firstar Corp. 91,400 1,925,113 FleetBoston Financial Corp. 115,022 3,910,748 J.P. Morgan & Company, Inc. 12,200 1,343,525 MBNA Corp. 116,000 3,146,500 National City Corp. 64,100 1,093,706 State Street Corp. 23,800 2,524,288 Wells Fargo & Co. 121,130 4,693,787 -------------- 38,538,108 -------------- BEVERAGE (2.2%) Adolph Coors Co. 35,300 2,135,650 Anheuser-Busch Cos. 52,200 3,898,688 Coca-Cola Co. 209,500 12,033,156 PepsiCo, Inc. 108,600 4,825,913 -------------- 22,893,407 -------------- BROKERAGE (3.5%) Bear Stearns Cos., Inc. 57,600 2,397,600 Charles Schwab Corp. 93,350 3,138,894 Lehman Brothers Holdings, Inc. 51,300 4,851,056 Merrill Lynch & Co. 62,400 7,176,000 MGIC Investment Corp. 55,900 2,543,450 Morgan Stanley Dean Witter & Co. 143,350 11,933,887 Paine Webber Group, Inc. 47,500 2,161,250 T. Rowe Price & Associates, Inc. 44,200 1,879,883 -------------- 36,082,020 -------------- BUILDING MATERIALS (0.1%) Masco Corp. 61,500 1,110,844 -------------- CAPITAL GOODS (1.3%) Applied Materials, Inc. (A) 83,900 7,606,064 Honeywell International, Inc. 79,912 2,692,036 Nucor Corp. 13,500 448,031 Tellabs, Inc. (A) 32,900 2,252,624 -------------- 12,998,755 -------------- CHEMICALS (0.7%) Dow Chemical Co. 62,400 1,883,700 E.l. Dupont de Nemours & Co. 80,456 3,519,950 Praxair, Inc. 13,000 486,688 Rohm & Haas Co. 36,500 1,259,250 Union Carbide Corp. 10,000 495,000 -------------- 7,644,588 -------------- CONGLOMERATES (5.6%) Emerson Electric Co. 20,900 1,261,838 General Electric Co. 802,900 42,553,700 Minnesota Mining & Manufacturing Co. 18,900 1,559,250 Tyco International Ltd. 182,000 8,622,250 United Technologies Corp. 70,800 4,168,350 -------------- 58,165,388 -------------- CONSTRUCTION MACHINE (0.3%) Caterpillar, Inc. 19,400 657,175 Ingersoll-Rand Co. 51,000 2,052,750 -------------- 2,709,925 -------------- CONSUMER (2.0%) ACNielsen Corp. (A) 141,000 3,102,000 Ball Corp. 27,100 872,281 Black & Decker Corp. 20,500 805,906 Colgate-Palmolive Co. 72,300 4,328,963 Kimberly Clark Corp. 70,360 4,036,905 Procter & Gamble Co. 135,770 7,772,833 -------------- 20,918,888 -------------- DEFENSE (0.3%) Lockheed Martin Corp. 129,900 3,223,144 -------------- ENTERTAINMENT (2.7%) Seagram Co. Ltd. 37,700 2,186,600 Time Warner, Inc. 120,300 9,142,800 Viacom, Inc. (A) 129,576 8,835,464 Walt Disney Co. 203,965 7,916,392 -------------- 28,081,256 -------------- FINANCE (1.7%) American Express Co. 145,500 7,584,188 Household International 69,400 2,884,438 Marsh & McLennan Cos. 20,300 2,120,081 Metlife Capital Trust (A) 118,800 2,502,225 Providian Financial Corp. 31,800 2,862,000 -------------- 17,952,932 -------------- FOOD (0.8%) Bestfoods, Inc. 42,900 2,970,825 McDonald's Corp. 58,400 1,923,550 Systemsco Corp. 77,600 3,268,900 -------------- 8,163,275 --------------
-13- 16 STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED
NO. OF MARKET SHARES VALUE ------------- ------------ HEALTHCARE (1.1%) Abbott Laboratories 78,300 $ 3,489,244 Cardinal Health, Inc. 26,900 1,990,600 Columbia/HCA Healthcare Corp. 90,400 2,745,900 PE Corp- Celera Genomics Group 50,100 3,300,338 -------------- 11,526,082 -------------- INDEPENDENT ENERGY (0.2%) Apache Corp 32,000 1,882,000 -------------- INSURANCE (3.1%) Aetna, Inc. 44,800 2,875,600 Allstate Corp. 107,050 2,381,862 Ambac Financial Group, Inc. 26,900 1,474,456 American General Corp. 18,500 1,128,500 Cigna Corp. 38,600 3,609,100 Cincinnati Financial Corp. 62,800 1,976,241 International Lease Finance Corp. 120,792 14,193,060 Lincoln National Corp. 61,400 2,218,075 MBIA, Inc. 33,900 1,633,556 -------------- 31,490,450 -------------- INTEGRATED ENERGY (4.6%) Chevron Corp. 53,800 4,562,912 Conoco, Inc. 48,604 1,193,836 Exxon Mobil Corp. 282,298 22,160,393 Kerr Mcgee Corp. 32,100 1,891,894 Occidental Petroleum Corp. 33,200 699,275 Phillips Petroleum Co. 21,100 1,069,506 Royal Dutch Petroleum Co. 167,400 10,305,562 Texaco, Inc. 42,600 2,268,450 USX-Marathon Group 24,900 624,056 Williams Cos. 59,700 2,488,744 -------------- 47,264,628 -------------- MEDIA (1.5%) Clear Channel Communications, Inc. (A) 23,230 1,742,250 Comcast Corp. 69,600 2,820,978 Gannett Company, Inc. 35,700 2,135,306 Interpublic Group Companies, Inc. 44,100 1,896,300 New York Times Co. 50,100 1,978,950 Omnicom Group, Inc. 29,500 2,627,344 Tribune Co. 61,300 2,145,500 -------------- 15,346,628 -------------- METALS (0.5%) Alcan Aluminum Ltd. 15,900 492,900 Alcoa, Inc. 73,144 2,121,176 Barrick Gold Corp. 60,300 1,096,706 Phelps Dodge Corp. 21,000 780,938 W.R. Grace & Co. (A) 94,200 1,142,175 -------------- 5,633,895 -------------- NATURAL GAS PIPELINE (0.4%) Enron Corp. 65,000 4,192,500 -------------- OIL FIELD (0.7%) Baker Hughes Inc. 26,900 860,800 Halliburton Co. 38,200 1,802,563 Schlumberger Ltd. 44,300 3,305,888 Transocean Sedco Forex, Inc. 23,682 1,265,507 -------------- 7,234,758 -------------- PAPER (0.5%) Avery Dennison Corp. 22,500 1,510,312 Georgia-Pacific Group 41,300 1,084,125 International Paper Co. 40,700 1,213,369 Mead Corp. 25,350 640,088 Weyerhaeuser Co. 17,600 756,800 -------------- 5,204,694 -------------- PHARMACEUTICALS (9.9%) Allergan, Inc. 54,000 4,023,000 American Home Products Corp. 106,600 6,262,750 Amgen, Inc. (A) 106,700 7,499,015 Baxter International, Inc. 24,600 1,729,688 Bristol-Myers Squibb Co. 179,900 10,479,175 Eli Lilly & Co. 62,100 6,202,238 Johnson & Johnson 124,100 12,642,688 Merck & Co, Inc. 216,600 16,596,975 Pfizer, Inc. 525,665 25,231,920 Pharmacia & Upjohn, Inc. 100,748 5,207,412 Schering-Plough Corp. 119,800 6,049,900 -------------- 101,924,761 -------------- REFINING (0.1%) Tosco Corp. 22,000 622,875 -------------- RETAILERS (5.2%) Bed Bath & Beyond, Inc. (A) 41,200 1,492,215 Best Buy Company, Inc. (A) 35,700 2,258,025 Circuit City Stores, Inc. 38,800 1,287,675 CVS Corp. 53,100 2,124,000 Home Depot, Inc. 165,547 8,267,003 Kohl's Corp. (A) 49,400 2,747,875 Limited, Inc. 149,100 3,224,288 Lowe's Cos., Inc. 69,500 2,853,844 Sears, Roebuck & Co. 106,770 3,483,371 Target Corp. 53,300 3,091,400 Walgreen Co. 120,700 3,885,031 Wal-Mart Stores, Inc. 326,200 18,797,275 -------------- 53,512,002 -------------- SERVICES (6.5%) Altera Corp. (A) 40,100 4,086,443 Biogen, Inc. (A) 21,600 1,392,526 Cendant Corp. (A) 212,900 2,980,600 Medtronic, Inc. 84,800 4,224,100 Microsoft (A) 421,200 33,682,859 Oracle Corp. (A) 243,674 20,476,243 -------------- 66,842,771 -------------- SUPERMARKETS (0.3%) Safeway, Inc. (A) 79,530 3,588,791 --------------
-14- 17 STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED
NO. OF MARKET SHARES VALUE ------------ ------------ TECHNOLOGY (24.6%) Adobe Systems, Inc. 24,000 $ 3,117,751 Advanced Micro Device (A) 33,200 2,564,700 Agilent Technologies, Inc. (A) 31,465 2,320,543 America Online, Inc. (A) 180,300 9,510,825 Analog Devices, Inc. (A) 53,400 4,058,400 Apple Computers, Inc. (A) 57,800 3,025,471 Automatic Data Processing 36,100 1,933,606 Cisco Systems, Inc. (A) 559,300 35,533,056 Compaq Computer Corp. 138,168 3,531,919 Computer Associates International 37,200 1,904,175 Comverse Technology, Inc. (A) 27,300 2,539,754 Corning, Inc. 38,400 10,363,200 Dell Computer Corp. (A) 147,820 7,294,000 Eastman Kodak Co. 29,700 1,767,150 EMC Corp. (A) 154,600 11,894,537 First Data Corp. 64,900 3,220,662 Hewlett Packard Co. 89,800 11,213,775 Intel Corp. 276,755 36,990,049 International Business Machine Corp. 155,200 17,004,100 Level 3 Communications (A) 39,900 2,276,793 LSI Logic (A) 42,100 2,278,662 Lucent Technologies 267,898 15,872,956 Micron Technologies, Inc. (A) 74,400 6,551,850 Motorola, Inc. 172,700 5,019,094 Network Appliance Corp. (A) 38,000 3,057,814 PerkinElmer, Inc. 45,000 2,975,625 QUALCOMM, Inc. (A) 61,000 3,658,097 Siebel Systems, Inc. (A) 23,700 3,877,173 Solectron Corp. (A) 72,600 3,040,125 Sun Microsystem, Inc. (A) 136,400 12,408,144 Teradyne, Inc. (A) 30,800 2,263,800 Texas Instruments, Inc. 137,600 9,451,400 VERITAS Software Corp. (A) 26,500 2,993,673 Xilinx, Inc. (A) 46,200 3,815,833 Yahoo, Inc. (A) 40,490 5,016,966 -------------- 254,345,678 -------------- TELECOMMUNICATIONS (10.1%) ADC TeleCommunications, Inc. (A) 53,100 4,452,106 ALLTEL Corp. 32,900 2,037,744 AT&T Corp. 309,265 9,780,505 AT&T Wireless (A) 51,400 1,432,775 Bell Atlantic Corp. 159,658 8,112,622 BellSouth Corp. 121,200 5,166,150 Broadcom Corp. (A) 18,900 4,137,919 Global Crossing, Ltd. (A) 56,400 1,485,790 GTE Corp. 47,000 2,925,750 MCI Worldcom, Inc. (A) 247,226 11,349,231 Nextel Communications, Inc. (A) 109,800 6,714,962 Nortel Networks Corp. 254,400 17,362,800 SBC Communications, Inc. 302,818 13,096,878 Sprint Corp. - Fon Group 87,912 4,483,512 Sprint Corp. - PCS Group (A) 117,606 6,997,557 US West, Inc. 57,870 4,962,352 -------------- 104,498,653 -------------- TOBACCO (0.6%) Philip Morris Cos. 231,100 6,138,594 -------------- TRANSPORTATION SERVICES (0.2%) FDX Corp. (A) 42,000 1,596,000 -------------- U.S. AGENCY (0.7%) Federal Home Loan Mortgage Corp. 70,000 2,835,000 Federal National Mortgage Association 88,000 4,592,500 -------------- 7,427,500 -------------- UTILITIES (1.1%) AES Corp. (A) 63,600 2,901,750 FirstEnergy Corp. 101,400 2,370,225 FPL Group, Inc. 35,000 1,732,500 Montana Power Co. 35,100 1,239,469 PECO Energy 63,500 2,559,844 Southern Co. 33,300 776,306 -------------- 11,580,094 -------------- TOTAL COMMON STOCK (COST $740,982,748) 1,017,453,066 --------------
-15- 18 STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED
PRINCIPAL MARKET AMOUNT VALUE ------------ ------------ SHORT-TERM INVESTMENTS (1.5%) COMMERCIAL PAPER (1.4%) Ford Motor Credit Co., 6.65% due July 7, 2000 $ 6,275,000 $ 6,266,641 Household Finance Corp., 7.00% due July 3, 2000 983,000 982,623 Transamerica Financial Corp., 6.68% due July 17, 2000 4,825,000 4,809,869 UBS Finance (DE), Inc., 7.05% due July 5, 2000 2,700,000 2,697,411 -------------- 14,756,544 -------------- U.S. TREASURY (0.1%) United States of America Treasury, 5.94% due October 19, 2000 (B) 460,000 452,065 -------------- TOTAL SHORT-TERM INVESTMENTS (COST $15,211,505) 15,208,609 --------------
NOTIONAL VALUE ------------ FUTURES CONTRACTS (0.0%) S&P 500 Stock Index, Exp. September, 2000 (C) $ 8,074,550 - -------------- TOTAL INVESTMENTS (100%) (COST $756,194,253) (D) $ 1,032,661,675 ===============
NOTES (A) Non-income Producing Security. (B) Par value of $460,000 pledged to cover margin deposits on futures contracts. (C) As more fully discussed in Note 1 to the financial statements, it is Account GIS's practice to hold cash and cash equivalents (including short-term investments) at least equal to the underlying face value, or notional value, of outstanding purchased futures contracts, less the initial margin. Account GIS uses futures contracts as a substitute for holding individual securities. (D) At June 30, 2000, net unrealized appreciation for all securities was $276,467,422. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of market value over cost of $314,737,857 and aggregate gross unrealized depreciation for all securities in which there was an excess of cost over market value of $38,270,435. See Notes to Financial Statements -16- 19 THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES The Travelers Quality Bond Account for Variable Annuities ("Account QB") had a gross return of 0.69% for the second quarter; versus 1.69% for the Lehman Intermediate Government/Corporate Index (The Lehman Government/Corporate Bond Index is a combination of publicly issued intermediate and long-term U.S. government bonds and corporate bonds). Account QB underperformed it's benchmark by 100 basis points. For the six months ended, Account QB has returned 2.48%, and the benchmark 3.22%, resulting in respective underperformance of 74 basis points. The fund was hurt by exposure to financial (FINOVA Capital Corp.) and retail (Saks, Inc.) companies that had some earnings surprises this past quarter. Treasury yields in the 1-10 year range fell in the second quarter and the inversion became slightly less extreme, with two-year yields ending at 6.36% (down 13 basis points) and thirty-year yields at 5.90% (up 6 basis points). The 10-year treasury yield was essentially flat at 6.02%. A slide in yields that had begun in January bottomed in early April, as the market became concerned about the Federal Reserve Board ("Fed") actions, continued corporate and consumer borrowing demand and earnings stability. The ten-year yield rose from under 5.80% at that point to over 6.50%, where it hovered for most of May until it appeared that the Fed's latest, 50-point, hike was sufficient in braking on the economy. The 10-year yield then fell back to just north of 6.00%. Corporate yields rose more than treasuries due to credit concerns resulting from higher rates. Thirty-year A-quality spreads widened from 200 to 250 in May before retracing most of the widening. On signs of a cool economy, investment-grade spreads tightened uniformly for the first time this year in June, but remain near historic peaks. Yields on 10-year Baa bonds closed at around 8.20%. After three quarters of economic growth over 5%, it appears that the second quarter will see a number south of 4%. While the second quarter has shown cyclical weakness in recent years, there are good reasons to believe that the Fed's tightening stance has caused a true braking of a speeding economy. The Conference Board's index of leading economic indicators fell in May. Among signs of slower growth released this past month were decreased auto sales, a lower consumer confidence figure, concern over bank loan portfolio quality, and corporate earnings concern not just in high-tech areas but in retail markets like clothing and electronics. For these reasons, the finance and retail sectors were especially hit with concentrated concern in the quarter. Yankee and utility bonds lead the corporate issues this quarter and for the year. Due to some credit concerns and spread widenings that have been proportional to risk, AAA quality bonds have outperformed lower-quality counterparts this quarter and year-to-date. Issuance in the investment-grade corporate bond market remains significantly lower than that of 1999, due partly to both pre-Y2K funding and higher borrowing costs. The combination of a tight monetary policy and high debt ratios among both corporations and consumers could exacerbate an otherwise small slowdown in economic activity. We are not overly concerned about a hard landing at this time and believe that the next two months leading up to the August FOMC meeting will shed important light on the lagging effects of the six rate hikes made in the last year. We believe that the recent snap-back in corporate spreads will continue in the second half of the year, thereby neutralizing most of the overreaction we've seen to some sub-sectors of corporate issues. PORTFOLIO MANAGER: F. DENNEY VOSS [TAMIC LOGO] -17- 20 THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 2000
ASSETS: Investment securities, at market value (cost $128,348,419) ..... $124,520,426 Receivables: Interest .................................................... 1,994,756 Investment securities sold .................................. 11,593,388 Purchase payments and transfers from other Travelers accounts 25,868 Other assets ................................................... 1,245 ------------ Total Assets .............................................. 138,135,683 ------------ LIABILITIES: Cash overdraft ................................................. 43,472 Payables: Investment securities purchased ............................. 11,445,001 Contract surrenders and transfers to other Travelers accounts 110,545 Investment management and advisory fees ..................... 8,931 Insurance charges ........................................... 32,286 Accrued liabilities ............................................ 218 ------------ Total Liabilities ......................................... 11,640,453 ------------ NET ASSETS: $126,495,230 ============
See Notes to Financial Statements -18- 21 THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2000
INVESTMENT INCOME: Interest ................................................... $ 4,691,585 EXPENSES: Investment management and advisory fees .................... $ 209,591 Insurance charges .......................................... 765,110 ------------ Total expenses ......................................... 974,701 ------------ Net investment income ............................... 3,716,884 ------------ REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES: Realized gain (loss) from investment security transactions: Proceeds from investment securities sold ................. 69,579,490 Cost of investment securities sold ....................... 70,443,326 ------------ Net realized gain (loss) ............................ (863,836) Change in unrealized loss on investment securities: Unrealized loss at December 31, 1999 ..................... (3,194,214) Unrealized loss at June 30, 2000 ......................... (3,827,993) ------------ Net change in unrealized gain (loss) for the period . (633,779) ------------ Net realized gain (loss) and change in unrealized gain (loss) (1,497,615) ------------ Net increase in net assets resulting from operations ....... $ 2,219,269 ============
See Notes to Financial Statements -19- 22 THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2000 1999 ---- ---- (UNAUDITED) OPERATIONS: Net investment income ........................................ $ 3,716,884 $ 7,682,536 Net realized gain (loss) from investment security transactions (863,836) (3,264,548) Net change in unrealized gain (loss) on investment securities (633,779) (3,187,953) ------------- ------------- Net increase in net assets resulting from operations ........ 2,219,269 1,230,035 ------------- ------------- UNIT TRANSACTIONS: Participant purchase payments (applicable to 530,840 and 1,784,107 units, respectively) .. 3,105,501 10,308,965 Participant transfers from other Travelers accounts (applicable to 974,028 and 2,515,938 units, respectively) .. 5,699,790 14,547,000 Administrative charges (applicable to 6,709 and 15,591 units, respectively) ....... (39,663) (90,289) Contract surrenders (applicable to 1,420,081 and 3,295,199 units, respectively) (8,372,548) (19,155,386) Participant transfers to other Travelers accounts (applicable to 2,493,240 and 5,288,415 units, respectively) (14,588,476) (30,584,506) Other payments to participants (applicable to 65,534 and 194,998 units, respectively) ..... (394,967) (1,142,207) ------------- ------------- Net decrease in net assets resulting from unit transactions ............................................. (14,590,363) (26,116,423) ------------- ------------- Net decrease in net assets ................................ (12,371,094) (24,886,388) NET ASSETS: Beginning of period ........................................ 138,866,324 163,752,712 ------------- ------------- End of period .............................................. $ 126,495,230 $ 138,866,324 ============= =============
See Notes to Financial Statements -20- 23 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES The Travelers Quality Bond Account for Variable Annuities ("Account QB") is a separate account of The Travelers Insurance Company ("The Travelers"), an indirect wholly owned subsidiary of Citigroup Inc., and is available for funding certain variable annuity contracts issued by The Travelers. Account QB is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The following is a summary of significant accounting policies consistently followed by Account QB in the preparation of its financial statements. SECURITY VALUATION. Investments in securities traded on a national securities exchange are valued at the 4:00 p.m. Eastern Standard Time price of the New York Stock Exchange on the last business day of the period; securities traded on the over-the-counter market and listed securities with no reported sales are valued at the mean between the last-reported bid and asked prices or on the basis of quotations received from a reputable broker or other recognized source. When market quotations are not considered to be readily available for long-term corporate bonds and notes, such investments are generally stated at fair value on the basis of valuations furnished by a pricing service. These valuations are determined for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. Securities, including restricted securities, for which pricing services are not readily available, are valued by management at prices which it deems in good faith to be fair. Short-term investments for which a quoted market price is available are valued at market. Short-term investments for which there is no reliable quoted market price are valued at amortized cost which approximates market. SECURITY TRANSACTIONS. Security transactions are accounted for on the trade date. Interest income is recorded on the accrual basis. Premiums and discounts are amortized to interest income utilizing the constant yield method. FUTURES CONTRACTS. Account QB may use interest rate futures contracts as a substitute for the purchase or sale of individual securities. When Account QB enters into a futures contract, it agrees to buy or sell specified debt securities at a future time for a fixed price, unless the contract is closed prior to expiration. Account QB is obligated to deposit with a broker an "initial margin" equivalent to a percentage of the face, or notional value of the contract. It is Account QB's practice to hold cash and cash equivalents in an amount at least equal to the notional value of outstanding purchased futures contracts, less the initial margin. Cash and cash equivalents include cash on hand, securities segregated under federal and brokerage regulations, and short-term highly liquid investments with maturities generally three months or less when purchased. Generally, futures contracts are closed prior to expiration. Futures contracts purchased by Account QB are priced and settled daily; accordingly, changes in daily prices are recorded as realized gains or losses and no asset is recorded in the Statement of Investments. However, when Account QB holds open futures contracts, it assumes a market risk generally equivalent to the underlying market risk of change in the value of the debt securities associated with the futures contract. REPURCHASE AGREEMENTS. When Account QB enters into a repurchase agreement (a purchase of securities whereby the seller agrees to repurchase the securities at a mutually agreed upon date and price), the repurchase price of the securities will generally equal the amount paid by Account QB plus a negotiated interest amount. The seller under the repurchase agreement will be required to provide to Account QB securities (collateral) whose market value, including accrued interest, will be at least equal to 102% of the repurchase price. Account QB monitors the value of collateral on a daily basis. Repurchase agreements will be limited to transactions with national banks and reporting broker dealers believed to present minimal credit risks. Account QB's custodian will take actual or constructive receipt of all securities underlying repurchase agreements until such agreements expire. -21- 24 NOTES TO FINANCIAL STATEMENTS (UNAUDITED)- CONTINUED FEDERAL INCOME TAXES. The operations of Account QB form a part of the total operations of The Travelers and are not taxed separately. The Travelers is taxed as a life insurance company under the Internal Revenue Code of 1986, as amended (the "Code"). Under existing federal income tax law, no taxes are payable on the investment income and capital gains of Account QB. Account QB is not taxed as a "regulated investment company" under Subchapter M of the Code. OTHER. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. INVESTMENTS The aggregate costs of purchases and proceeds from sales of investments (other than short-term securities) were $31,941,095 and $37,905,255, respectively; the costs of purchases and proceeds from sales of direct and indirect U.S. government securities were $16,932,311 and $35,170,116, respectively, for the six months ended June 30, 2000. Realized gains and losses from investment security transactions are reported on an identified cost basis. 3. CONTRACT CHARGES Investment management and advisory fees are calculated daily at an annual rate of 0.3233% of Account QB's average net assets. These fees are paid to Travelers Asset Management International Company, LLC, an indirect wholly owned subsidiary of Citigroup Inc. Insurance charges are paid for the mortality and expense risks assumed by The Travelers. Each business day, The Travelers deducts a mortality and expense risk charge which is reflected in the calculation of accumulation and annuity unit values. This charge equals, on an annual basis, 1.0017% for contracts issued prior to May 16, 1983 and 1.25% on an annual basis for contracts issued on or after May 16, 1983. Additionally, for certain contracts in the accumulation phase, a semi-annual charge of $15 (prorated for partial years) is deducted from participant account balances and paid to The Travelers to cover administrative charges. On contracts issued prior to May 16, 1983, The Travelers retained from Account QB sales charges of $3,110 and $7,024 for the six months ended June 30, 2000 and the year ended December 31, 1999, respectively. The Travelers generally assesses a 5% contingent deferred sales charge if a participant's purchase payment is surrendered within five years of its payment date. Contract surrender payments include $85,184 of contingent deferred sales charges for the year ended December 31, 1999. There were no contingent deferred sales charges for the six months ended June 30, 2000. -22- 25 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 4. NET ASSETS HELD ON BEHALF OF AN AFFILIATE Approximately $301,000 and $310,000 of the net assets of Account QB were held on behalf of an affiliate of The Travelers as of June 30, 2000 and December 31, 1999, respectively. Transactions with this affiliate during the six months ended June 30, 2000 and the year ended December 31, 1999, were comprised of participant purchase payments of approximately $14,000 and $105,000 and contract surrenders of approximately $28,000 and $249,000, respectively. 5. NET CONTRACT OWNERS' EQUITY
JUNE 30, 2000 -------------------------------------------------- UNIT NET UNITS VALUE ASSETS ----- ------- ------ Accumulation phase of contracts issued prior to May 16, 1983 ................... 5,710,798 $ 6.165 $ 35,212,442 Annuity phase of contracts issued prior to May 16, 1983 ........................ 102,893 6.165 634,435 Accumulation phase of contracts issued on or after May 16, 1983 ................ 15,334,351 5.907 90,602,089 Annuity phase of contracts issued on or after May 16, 1983 ..................... 7,830 5.907 46,264 --------------- Net Contract Owners' Equity .................................................................................. $ 126,495,230 ===============
-23- 26 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 6. SUPPLEMENTARY INFORMATION (Selected data for a unit outstanding throughout each period.)
Contracts issued prior to May 16, 1983 SIX MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION) -------- --------------------------------------------------- 2000 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- ---- SELECTED PER UNIT DATA: Total investment income ........................................ $ .218 $ .393 $ .363 $ .353 $ .379 $ .328 Operating expenses ............................................. .040 .080 .076 .071 .067 .063 -------- -------- -------- --------- -------- -------- Net investment income .......................................... .178 .313 .287 .282 .312 .265 Unit value at beginning of period .............................. 6.055 5.994 5.593 5.234 5.050 4.400 Net realized and change in unrealized gains (losses) ........... (.068) (.252) .114 .077 (.128) .385 -------- -------- -------- --------- -------- -------- Unit value at end of period .................................... $ 6.165 $ 6.055 $ 5.994 $ 5.593 $ 5.234 $ 5.050 ======== ======== ======== ========= ======== ======== SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase in unit value ..................................... $ .11 $ .06 $ .40 $ .36 $ .18 $ .65 Ratio of operating expenses to average net assets .............. 1.33%* 1.33% 1.33% 1.33% 1.33% 1.33% Ratio of net investment income to average net assets ........... 5.88%* 5.22% 4.96% 5.25% 6.12% 5.54% Number of units outstanding at end of period (thousands)........ 5,814 6,224 6,880 7,683 8,549 9,325 Portfolio turnover rate ........................................ 406% 340% 438% 196% 176% 138%
Contracts issued on or after May 16, 1983 SIX MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION) ----------- ------------------------------------------------- 2000 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- ---- SELECTED PER UNIT DATA: Total investment income ................................... $ .209 $ .378 $ .350 $ .342 $ .368 $ .319 Operating expenses ........................................ .046 .091 .088 .082 .078 .073 -------- -------- -------- -------- -------- -------- Net investment income ..................................... .163 .287 .262 .260 .290 .246 Unit value at beginning of period ......................... 5.810 5.765 5.393 5.060 4.894 4.274 Net realized and change in unrealized gains (losses) ...... (.066) (.242) .110 .073 (.124) .374 -------- -------- -------- -------- -------- -------- Unit value at end of period ............................... $ 5.907 $ 5.810 $ 5.765 $ 5.393 $ 5.060 $ 4.894 ======== ======== ======== ======== ======== ======== SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase in unit value ................................ $ .10 $ .04 $ .37 $ .33 $ .17 $ .62 Ratio of operating expenses to average net assets ......... 1.57%* 1.57% 1.57% 1.57% 1.57% 1.57% Ratio of net investment income to average net assets ...... 5.64%* 4.97% 4.71% 5.00% 5.87% 5.29% Number of units outstanding at end of period (thousands) .. 15,342 17,412 21,251 21,521 24,804 27,066 Portfolio turnover rate ................................... 406% 340% 438% 196% 176% 138% * Annualized
-24- 27 ] THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF INVESTMENTS (UNAUDITED) JUNE 30, 2000
PRINCIPAL MARKET AMOUNT VALUE ------------ ------------ BONDS (87.4%) AIRLINES (1.2%) Delta Airlines, Inc., 9.25% Sinking Fund, 2007 $ 1,426,795 $ 1,428,442 ------------- BANKING (6.0%) Bank of America Corp., 7.80% Debentures, 2010 6,000,000 5,978,220 MBNA American Bank NA, 6.00% Debentures, 2000 1,500,000 1,491,037 -------------- 7,469,257 -------------- FINANCE (20.4%) Comdisco, Inc., 7.25% Debentures, 2001 6,800,000 6,676,696 FINOVA Capital Corp., 6.25% Debentures, 2002 7,500,000 6,522,232 Orix Credit Alliance, 6.78% Debentures, 2001 5,900,000 5,849,242 Osprey Holdings, Inc., 8.31% Debentures, 2003 (A) 6,300,000 6,323,934 -------------- 25,372,104 -------------- FOOD (6.1%) Nabisco, Inc., 6.70% Debentures, 2002 7,800,000 7,574,206 -------------- GAMING (5.5%) Park Place Entertainment, 7.95% Debentures, 2003 7,000,000 6,908,125 -------------- HEALTHCARE (3.7%) Columbia/HCA Healthcare Corp., 6.87% Debentures, 2003 5,000,000 4,628,670 -------------- MEDIA (2.4%) Clear Channel Communications, Inc., 7.88% Debentures, 2005 3,000,000 3,017,559 -------------- PAPER (3.6%) International Paper Co., 8.13% Debentures, 2005 4,400,000 4,443,318 -------------- REAL ESTATE (9.1%) CarrAmerica Realty Corp., 6.63% Debentures, 2000 5,200,000 5,182,918 Nationwide Health Properties, Inc., 6.90% Debentures, 2037 7,000,000 6,174,350 -------------- 11,357,268 -------------- RETAILERS (10.3%) Federated Department Stores Inc., 8.50% Debentures, 2010 5,700,000 5,814,120 Saks, Inc., 7.25% Debentures, 2004 4,000,000 3,596,912 Saks, Inc., 7.50% Debentures, 2010 2,000,000 1,638,150 Target Corp., 6.80 % Debentures, 2001 1,800,000 1,790,422 -------------- 12,839,604 -------------- TELECOMMUNICATIONS (10.7%) Deutsche Telecommunication, 8.00% Debentures, 2010 6,000,000 6,060,840 Telecom New Zealand Financial Corp., 6.25% Debentures, 2003 7,500,000 7,314,525 -------------- 13,375,365 -------------- UTILITIES (8.4%) CMS Energy Corp., 7.63% Debentures, 2004 1,750,000 1,654,878 CMS Energy Corp., 6.75% Debentures, 2004 3,000,000 2,779,473 UtiliCorp United, Inc., 6.88% Debentures, 2004 6,300,000 6,015,297 -------------- 10,449,648 -------------- TOTAL BONDS (COST $112,690,430) 108,863,566 --------------
-25- 28 STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED 29 STATEMENT OF INVESTMENTS (UNAUDITED) - CONTINUED
PRINCIPAL MARKET AMOUNT VALUE ------------ ------------ SHORT-TERM INVESTMENTS (12.6%) COMMERCIAL PAPER (12.6%) Boeing Capital Corp., 7.00% Debentures, 2000 $ 5,000,000 $ 4,994,270 Ford Motor Credit Co., 6.65% Debentures, 2000 4,835,000 4,828,560 Tranamerica Financial Corp., 6.68% Debentures, 2000 2,435,000 2,427,364 Household Finance Corp., 7.00% Debentures, 2000 468,000 467,820 Franchise Finance Corp., 7.00% Debentures, 2000 2,950,000 2,938,846 -------------- TOTAL SHORT-TERM INVESTMENTS (COST $15,657,989) 15,656,860 -------------- TOTAL INVESTMENTS (100%) (COST $128,348,419) (B) $ 124,520,426 ==============
NOTES (A) Restricted Security. (B) At June 30, 2000, net unrealized depreciation for all securities was $3,827,993. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of market value over cost of $292,072 and aggregate gross unrealized depreciation for all securities in which there was an excess of cost over market value of $4,120,065. See Notes to Financial Statements -26- 30 THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES During the six months ended the economy showed its first signs of a possible slowdown in the second quarter, as the June employment report implied the economy may have lost some of its forward momentum. The unemployment rate remains at 4.0%, and it is estimated that real Gross Domestic Product growth for the second quarter will be 3.6%, down from 5.5% in the first quarter. Although temporary factors may be behind recent economic data pointing to a slowing economy, evidence for a more fundamental deceleration has gained credibility recently based on a fading of the wealth effect, temporarily depressing real incomes, and the tightening of credit availability. The six months ended with the 30-year Treasury Bond yield at 5.90% and the federal funds rate at 6.50%. The 30-year Treasury Bond yield was up 7 basis points from the March 31 level of 5.83% and down 58 basis points from year-end. The May 16th meeting of the Federal Open Market Committee ("FOMC") resulted in an increase of the federal funds rate by 50 basis points, while leaving the rate unchanged in the June 28 meeting. The federal funds rate is up 100 basis points from the beginning of the year. Currently, the FOMC is maintaining an inflation bias. If economic strength persists, the Federal Reserve Board once again may have to tighten interest rates. The strategy in management of The Travelers Money Market Account for Variable Annuities short-term assets will be to maintain the current average life for maturities at 45 days. At June 30, 2000 the asset size of the portfolio was $155.1 million, with an average yield of 6.64%. PORTFOLIO MANAGER: EMIL J. MOLINARO JR. [TAMIC LOGO] -27- 31 THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 2000
ASSETS: Investment securities, at market value (cost $155,087,212) .... $155,085,903 Cash .......................................................... 1,517,433 Receivables: Interest .................................................... 103,951 Investment securities sold .................................. 3,800,000 Purchase payments and transfers from other Travelers accounts 835,172 Other assets .................................................. 1,184 ------------ Total Assets ............................................... 161,343,643 ------------ LIABILITIES: Payables: Investment securities purchased ............................. 5,315,504 Contract surrenders and transfers to other Travelers accounts 2,158,641 Investment management and advisory fees ..................... 10,969 Insurance charges ........................................... 42,399 Accrued liabilities ........................................... 243 ------------ Total Liabilities ........................................... 7,527,756 ------------ NET ASSETS: $153,815,887 ============
See Notes to Financial Statements -28- 32 THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2000 INVESTMENT INCOME: Interest .......................................................... $ 4,908,948 EXPENSES: Investment management and advisory fees ........................... $ 258,136 Insurance charges ................................................. 997,794 ------------ Total expenses ............................................... 1,255,930 -------------- Net investment income ........................................ 3,653,018 -------------- Net increase in net assets resulting from operations .............. $ 3,653,018 ==============
See Notes to Financial Statements -29- 33 THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2000 1999 ---- ---- (UNAUDITED) OPERATIONS: Net investment income ................................................ $ 3,653,018 $ 4,673,687 ------------- ------------- Net increase in net assets resulting from operations ................. 3,653,018 4,673,687 ------------- ------------- UNIT TRANSACTIONS: Participant purchase payments (applicable to 3,559,457 and 7,727,238 units, respectively) .......... 9,153,007 19,296,081 Participant transfers from other Travelers accounts (applicable to 79,434,332 and 137,148,554 units, respectively) ....... 203,966,570 342,447,640 Administrative charges (applicable to 22,401 and 44,123 units, respectively) ................ (58,165) (111,002) Contract surrenders (applicable to 8,896,973 and 11,795,197 units, respectively) ......... (22,879,229) (29,442,632) Participant transfers to other Travelers accounts (applicable to 85,426,712 and 103,863,953 units, respectively) ....... (219,214,641) (258,947,037) Other payments to participants (applicable to 129,982 and 207,463 units, respectively) .............. (335,194) (521,752) ------------- ------------- Net increase (decrease) in net assets resulting from unit transactions (29,367,652) 72,721,298 ------------- ------------- Net increase (decrease) in net assets ................................ (25,714,634) 77,394,985 NET ASSETS: Beginning of period .................................................. 179,530,521 102,135,536 ------------- ------------- End of period ........................................................ $ 153,815,887 $ 179,530,521 ============= =============
See Notes to Financial Statements -30- 34 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES The Travelers Money Market Account for Variable Annuities ("Account MM") is a separate account of The Travelers Insurance Company ("The Travelers"), an indirect wholly owned subsidiary of Citigroup Inc., and is available for funding certain variable annuity contracts issued by The Travelers. Account MM is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The following is a summary of significant accounting policies consistently followed by Account MM in the preparation of its financial statements. SECURITY VALUATION. Short-term investments for which a quoted market price is available are valued at market. Short-term investments for which there is no reliable quoted market price are valued at amortized cost which approximates market. SECURITY TRANSACTIONS. Security transactions are accounted for on the trade date. Interest income is recorded on the accrual basis. Premiums and discounts are amortized to interest income utilizing the constant yield method. REPURCHASE AGREEMENTS. When Account MM enters into a repurchase agreement (a purchase of securities whereby the seller agrees to repurchase the securities at a mutually agreed upon date and price), the repurchase price of the securities will generally equal the amount paid by Account MM plus a negotiated interest amount. The seller under the repurchase agreement will be required to provide to Account MM securities (collateral) whose market value, including accrued interest, will be at least equal to 102% of the repurchase price. Account MM monitors the value of collateral on a daily basis. Repurchase agreements will be limited to transactions with national banks and reporting broker dealers believed to present minimal credit risks. Account MM's custodian will take actual or constructive receipt of all securities underlying repurchase agreements until such agreements expire. FEDERAL INCOME TAXES. The operations of Account MM form a part of the total operations of The Travelers and are not taxed separately. The Travelers is taxed as a life insurance company under the Internal Revenue Code of 1986, as amended (the "Code"). Under existing federal income tax law, no taxes are payable on the investment income and capital gains of Account MM. Account MM is not taxed as a "regulated investment company" under Subchapter M of the Code. OTHER. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. CONTRACT CHARGES Investment management and advisory fees are calculated daily at an annual rate of 0.3233% of Account MM's average net assets. These fees are paid to Travelers Asset Management International Company, LLC, an indirect wholly owned subsidiary of Citigroup Inc. Insurance charges are paid for the mortality and expense risks assumed by The Travelers. Each business day, The Travelers deducts a mortality and expense risk charge which is reflected in the calculation of accumulation and annuity unit values. This charge equals, on an annual basis, 1.0017% for contracts issued prior to May 16, 1983 and 1.25% on an annual basis for contracts issued on or after May 16, 1983. Additionally, for certain contracts in the accumulation phase, a semi-annual charge of $15 (prorated for partial years) is deducted from participant account balances and paid to The Travelers to cover administrative charges. The Travelers assesses a 5% contingent deferred sales charge if a participant's purchase payment is surrendered within five years of its payment date. Contract surrender payments include $141,476 and $191,288 of contingent deferred sales charges for the six months ended June 30, 2000 and the year ended December 31, 1999, respectively. -31- 35 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 3. NET ASSETS HELD ON BEHALF OF AN AFFILIATE Approximately $3,381,000 and $3,431,000 of the net assets of Account MM were held on behalf of an affiliate of The Travelers as of June 30, 2000 and December 31, 1999, respectively. Transactions with this affiliate during the six months ended June 30, 2000 and the year ended December 31, 1999, were comprised of participant purchase payments of approximately $448,000 and $2,249,000 and contract surrenders of approximately $575,000 and $2,377,000, respectively. 4. NET CONTRACT OWNERS' EQUITY
JUNE 30, 2000 --------------------------------------------- UNIT NET UNITS VALUE ASSETS ----- ----- ------ Accumulation phase of contracts issued prior to May 16, 1983 .............. 24,316 $ 2.713 $ 65,988 Annuity phase of contracts issued prior to May 16, 1983 ................... 50,660 2.713 137,481 Accumulation phase of contracts issued on or after May 16, 1983 ........... 58,961,509 2.600 153,334,449 Annuity phase of contracts issued on or after May 16, 1983 ................ 106,887 2.600 277,969 -------------- Net Contract Owners' Equity ......................................................................... $ 153,815,887 ==============
-32- 36 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED 5. SUPPLEMENTARY INFORMATION (Selected data for a unit outstanding throughout each period.)
Contracts issued prior to May 16, 1983 SIX MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION) ---------- --------------------------------------------------- 2000 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- ---- SELECTED PER UNIT DATA: Total investment income ................................... $ .082 $ .135 $ .138 $ .134 $ .125 $ .130 Operating expenses ........................................ .018 .034 .033 .032 .030 .030 -------- -------- -------- -------- -------- -------- Net investment income .................................... .064 .101 .105 .102 .095 .100 Unit value at beginning of period ......................... 2.649 2.548 2.443 2.341 2.246 2.146 -------- -------- -------- -------- -------- -------- Unit value at end of period ............................... $ 2.713 $ 2.649 $ 2.548 $ 2.443 $ 2.341 $ 2.246 ======== ======== ======== ======== ======== ======== SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase in unit value ................................. $ .06 $ .10 $ .11 $ .10 $ .10 $ .10 Ratio of operating expenses to average net assets .......... 1.33%* 1.33% 1.33% 1.33% 1.33% 1.33% Ratio of net investment income to average net assets ....... 4.86%* 3.87% 4.20% 4.27% 4.10% 4.61% Number of units outstanding at end of period (thousands) ... 75 80 91 105 112 206
Contracts issued on or after May 16, 1983 SIX MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, JUNE 30, (DERIVED FROM AUDITED FINANCIAL INFORMATION) ------------ ---------------------------------------------------- 2000 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- ---- SELECTED PER UNIT DATA: Total investment income ................................... $ .079 $ .130 $ .133 $ .128 $ .121 $ .127 Operating expenses ........................................ .020 .039 .038 .036 .035 .034 -------- -------- -------- -------- -------- -------- Net investment income ..................................... .059 .091 .095 .092 .086 .093 Unit value at beginning of period ......................... 2.541 2.450 2.355 2.263 2.177 2.084 -------- --------- -------- -------- -------- -------- Unit value at end of period ............................... $ 2.600 $ 2.541 $ 2.450 $ 2.355 $ 2.263 $ 2.177 ======== ======== ======== ======== ======== ======== SIGNIFICANT RATIOS AND ADDITIONAL DATA: Net increase in unit value ................................ $ .06 $ .09 $ .10 $ .09 $ .09 $ .09 Ratio of operating expenses to average net assets ......... 1.57%* 1.57% 1.57% 1.57% 1.57% 1.57% Ratio of net investment income to average net assets ...... 4.61%* 3.62% 3.95% 4.02% 3.84% 4.36% Number of units outstanding at end of period (thousands) .. 59,068 70,545 41,570 36,134 38,044 35,721 * Annualized
-33- 37 THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES STATEMENT OF INVESTMENTS (UNAUDITED) JUNE 30, 2000
PRINCIPAL MARKET AMOUNT VALUE ------------ ------------ SHORT-TERM INVESTMENTS (100%) COMMERCIAL PAPER (100%) Albertsons, Inc., 6.76% due July 14, 2000 $ 5,000,000 $ 4,999,927 Alcoa Inc., 6.71% due July 27, 2000 7,500,000 7,462,905 American Express Credit Corp., 6.68% due July 6, 2000 7,500,000 7,491,405 American Honda Financial, 6.82% due June 25, 2001 7,500,000 7,500,000 Asset Securitization Corp., 6.67% due July 20, 2000 4,850,000 4,832,142 Associates Corp. of North, America, 6.77% due June 15, 2004 (A) 5,000,000 5,025,882 AT&T Corp., 6.28% due July 13, 2000 5,000,000 4,999,240 Bank One Corp., 6.90% due March 23, 2001 5,000,000 5,002,095 Becton Dickinson & Co., 6.70% due August 1, 2000 7,500,000 7,456,133 Bell Atlantic Financial Services, Inc., 6.74% due August 30, 2000 7,500,000 7,416,375 Boeing Capital Corp., 7.00% due July 6, 2000 2,500,000 2,497,135 Ford Motor Credit Co., 6.67 % due July 7, 2000 7,500,000 7,490,010 GE Capital Corp., 6.70% due July 27, 2000 7,330,000 7,293,746 General Dynamics Corp., 6.72% due July 11, 2000 5,000,000 4,989,685 General Motors Acceptance, 6.74% due July 12, 2000 7,750,000 7,732,624 Goldman Sachs Group LP, 6.72% due July 10, 2000 7,200,000 7,186,450 Household Finance Corp., 7.00% due July 3, 2000 2,820,000 2,818,919 Knight-Ridder Inc., 6.65% due July 18, 2000 5,872,000 5,852,517 New Castle 2000-A, 6.80% due July 7, 2000 7,500,000 7,490,010 Newell Rubbermaid Inc., 6.63% due July 6, 2000 3,225,000 3,221,304 Preferred Resources Funding Corp., 6.70% due July 20, 2000 7,500,000 7,472,385 Providian Master Trust, 6.70% due July 17, 2000 7,500,000 7,476,480 Swiss Reinsurance Co., 6.80 due September 15, 2000 7,500,000 7,394,362 Transamerica Financial Corp., 6.66% due July 18, 2000 6,135,000 6,114,644 Tribune Co., 6.72% due August 18, 2000 3,000,000 2,974,227 UBS Finance (DE) Inc., 6.86% due July 5, 2000 4,900,000 4,895,301 -------------- TOTAL INVESTMENTS (100%) (COST $155,087,212) $ 155,085,903 ==============
NOTES (A) Security is putable annually on June 15. See Notes to Financial Statements -34- 38 This page intentionally left blank. 39 This page intentionally left blank. 40 Investment Adviser TRAVELERS ASSET MANAGEMENT INTERNATIONAL COMPANY, LLC Hartford, Connecticut THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES Investment Sub-Adviser THE TRAVELERS INVESTMENT MANAGEMENT COMPANY Hartford, Connecticut THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES Independent Accountants KPMG LLP Hartford, Connecticut Custodian THE CHASE MANHATTAN BANK, N.A. New York, New York The financial information included herein has been taken from the records of The Travelers Growth and Income Stock Account for Variable Annuities, The Travelers Quality Bond Account for Variable Annuities, and The Travelers Money Market Account for Variable Annuities. This financial information has not been audited by the Accounts' independent accountants, who therefore express no opinion concerning its accuracy. However, it is management's opinion that all proper adjustments have been made. This report is prepared for the general information of contract owners and is not an offer of units of The Travelers Growth and Income Stock Account for Variable Annuities, The Travelers Quality Bond Account for Variable Annuities or The Travelers Money Market Account for Variable Annuities. It should not be used in connection with any offer except in conjunction with the Universal Annuity Prospectus which contains all pertinent information, including the applicable sales commissions. VG-137 (Semi-Annual) (6-00) Printed in U.S.A. -----END PRIVACY-ENHANCED MESSAGE-----